Archived updates for Wednesday, July 12, 2006

No Exhaustion of Patent Rights for Conditional License or Method Claims

In LG Electronics, Inc. v. Bizcom Electronics, Inc., et al. (No. 05-1251, July 7, 2006), the Federal Circuit reiterated that the "first sale" exhaustion doctrine does not apply to a conditional license or a patentee's rights in its method claims. According to Circuiyt Judge Mayer,

The LGE-Intel license expressly disclaims granting a license allowing computer system manufacturers to combine Intel’s licensed parts with other non-Intel components. Moreover, this conditional agreement required Intel to notify its customers of the limited scope of the license, which it did. AlthoughIntel was free to sell its microprocessors and chipsets, those sales wereconditional, and Intel’s customers were expressly prohibited from infringingLGE’s combination patents. Cf. N.Y. U.C.C. Law § 2-202 (allowing contracts to besupplemented by consistent additional terms unless the writing is intended to becomplete and exclusive). The "exhaustion doctrine . . . does not apply to anexpressly conditional sale or license," B. Braun Med. Inc., 124 F.3d at 1426, soLGE’s rights in asserting infringement of its system claims were not exhausted.

Conversely, the trial court declined to find LGE’s asserted method claimsexhausted. Several defendants contest this ruling on cross-appeal, and we rejecttheir challenge. Based on the above reasoning, even if the exhaustion doctrinewere applicable to method claims, it would not apply here because there was nounconditional sale. However, the sale of a device does not exhaust a patentee’srights in its method claims. Glass Equip. Dev., Inc. v. Besten, Inc., 174 F.3d1337, 1341 n.1 (Fed. Cir. 1999) (citing Bandag, Inc., 750 F.2d 903, 924 (Fed.Cir. 1984)). The [lower] court was correct.